Question page The Surprising Findings on Two Year Degrees by: Mark Peters and Do
ID: 347436 • Letter: Q
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The Surprising Findings on Two Year Degrees
by: Mark Peters and Douglas Belkan
Jun 25, 2014
TOPICS: Return on Investment
SUMMARY: As you pay your tuition bills, buy books and face the costs of higher education you may have wondered about the return on your investment. Data from Texas, Colorado and Indiana are beginning to provide insight into the value of higher education. The Federal Reserve also finished a study of returns. Some of the results are surprising. A college degree matters, but in some instances, a two-year degree may provide a competitive salary. The return on degrees has been stable for several decades and the difference in wages between the two degrees is also relatively constant. Part of the calculation is the opportunity cost; what you give up in terms of salary by forgoing work and going to college. Another important number is the wage you earn if all you have is a high school degree. Real wages for high school graduates dropped and helped maintain the earnings premium for college degrees.
CLASSROOM APPLICATION: It can be difficult at times to apply business concepts to your personal life. One important concept in personal finance is the return on investment for your education. It can be difficult to calculate on an individual basis, but studies incorporating state data suggest there is a positive return. The annualized rate of return the Federal Reserve found over a graduates career is 15% which is higher than the typical returns on financial investments. More specific data like starting salaries may be too narrow a measure, but it can help students look at schools and degrees.
QUESTIONS:
1.Give us your initial thoughts after reading this information on college degrees…
2. What are some benefits of either a two- or four-year degree based on the research discussed in the article?
3. Do you think it is a good idea to focus on starting salaries to make career decisions?
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Resources
video link: Link to video on Surprising Findings about 2-year Degrees: http://live.wsj.com/video/fed-study-it-still-makes-sense-to-go-to-college/77ED1F4C-ED1A-4A84-A447-E13BB9F289C6.html
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Surprising Findings on Two-Year vs. Four-Year Degrees
Return on Investment Holds Steady at About 15% for Recent Graduates
A college degree is worth it even as the cost of going to school rapidly escalates and real wages decline for graduates, WSJ's Mark Peters reports on Lunch Break with Tanya Rivero. Photo: Getty
By
Mark Peters and
Douglas Belkin
Updated June 24, 2014 7:43 p.m. ET
Who earns more, a recent graduate from a flagship state university with a bachelor's degree or one who finishes a two-year program at a little-known community college?
The answer isn't so clear.
As states for the first time mine graduates' salary data from public colleges, they are finding that paychecks for holders of associate degrees in a technical field are outstripping many grads with four-year degrees, at least early in a career.
The growing body of data, from states including Texas, Colorado and Indiana, provides a sober new look at the value of a postsecondary education in a slowly recovering economy.
Overall, the findings reinforce the belief that a college degree is worth the investment. But they highlight the reconsideration of a long-held article of faith that a four-year college degree guarantees at least a middle-class life, while an associate degree is its poor country cousin.
In Indiana, figures show that after a year in the workforce there, a graduate of Ivy Tech Community College makes more on average than a graduate of Indiana University.
A New York Federal Reserve study released Tuesday found that both associate and four-year degrees remain solid investments, even as the cost of going to school rapidly escalates and real wages decline for graduates.
New York Federal Reserve Bank economists Jaison Abel and Richard Deitz in the study calculated the annualized return on investment for the money put into a college degree over a graduate's career, pegging it at about 15% for current graduates. The figure, which far surpasses typical returns for stocks and bonds, has held largely constant for more than a decade.
Surprisingly, the economists found that the rate of return on a bachelor's and associate degree is largely the same and has remained that way for several decades in the U.S. And the difference in wages between the two degrees also has remained relatively constant, with a bachelor's-degree holder last year making about $65,800 and an associate-degree holder making about $46,300.
The cost of either degree—including tuition and lost wages from not working during the two- or four-year period—has remained largely the same over recent decades as well, at $110,000 to $130,000 for a bachelor's and $40,000 to $60,000 for an associate degree, according to the economists.
That is because while tuition has rapidly escalated for a four-year degree, the lost-wage cost of leaving the workforce for high-school graduates to attend school has fallen. (scroll down to keep reading…)
Degree-holders of all stripes shouldn't rejoice just yet. Helping to keep up the value of all college degrees is the declining prospect for those without one. The drop in real wages for high-school graduates has helped to keep the earnings premium for a college degree near its all-time high.
"The good news for college graduates is that the return to college remains high on average," Messrs. Abel and Deitz write. "However, the bad news is that college students are paying more to go to school and are earning less upon graduation."
While the Fed study focused on the overall returns of degrees, some states aim to provide students, parents and policy makers with more specifics, such as starting salaries for holders of certain diplomas.
"This comes from an increased focus on the value of higher education, and how to increase it," said Teresa Lubbers, Indiana's commissioner for higher education. "That's happened more in the last few years than ever before."
The Indiana commission for higher education issued its first "return on investment" report last year and found the average salary for a graduate with an associate degree eclipsed a bachelor's-degree holder's after a year in the workforce. But the earnings of a four-year degree started to surpass those of an associate-degree holder five years after graduation, with the gap growing to nearly $7,000 annually after 10 years.
In Colorado, a study conducted by College Measures, a partnership of the American Institutes for Research and Matrix Knowledge, looked more specifically at grads' first year in the workforce. Associate degrees in nursing, industrial production, fire protection and engineering all generated starting salaries above $60,000.
By comparison, the average starting salary for a graduate with a bachelor's degree in Colorado in any field was $38,860. Results in Texas and Arkansas were similar.
"If you know how to fix something or to fix people, you're going to do well with a two-year degree," College Measures President Mark Schneider said. "So if you're in construction, IT, high-tech manufacturing or if you're in a health profession, a two-year degree pays off."
To be sure, there are concerns among four-year colleges of an overemphasis on starting salaries. Some argue the measure is narrow and doesn't account for differences in a school's mission or location—or on a student's eventual earnings.
Still, the ramp-up in data is affecting how students and parents look at schools and degrees.
"Prospective students and their parents are asking much tougher questions about [return on investment] and outcomes," said Mitch Davis, spokesman for Fort Lewis College, a four-year school in southern Colorado.
At Front Range Community College, construction is under way on a new training center to keep up with demand for welding degrees. President Andrew Dorsey said the school works to strike a balance between technical competency and broader skills such as problem-solving to ensure careers with longevity.
"That is definitely on our minds in all programs," he said.
Explanation / Answer
1) After reading this scenario of College Degrees, so conclusions are made in regard to the benefit of taking Higher Bachelor Degree rather than going for a two-year degree. This is because it is associated with more income after graduation. And there is a difference of $20,000 income between two-year degree and a 4-year degree. So, based on the current status, interest of a student or family they can join their sons or daughters at the right place for a better future even though there is going to be an increase in the fee structure in the future. And this last for the time that no one can imagine.
2) As I have clearly mentioned the benefit of getting a high salary for 4-year graduate above it is good to choose that. In a four year degree, one can gain more knowledge and there is a lot more scope in the future in regard to math, science, engineering fields. But, there is a less scope for a 2-year degree. Apart from this, if one wants to settle down as early as possible without thinking about future, he can choose a 2-year degree at a stretch.
3) No, Absolutely not. Because the career is something which we hold for the rest of our life. It is just like our heart. The predictions just made by the calculations may change the very next day. So, always it is very important to choose the career option without thinking about salary strategies. But, this conclusion may change in regard to the Middle-class family. As they want money always, it’s better to choose the right option based on the position of them, the salary structure, future forecast etc.
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